(i) Cover: means transactions or positions in a contract for future delivery on a board of trade, or in a commodity option, where such transactions or positions normally represent a substitute for transactions to be made, or positions to be taken at a later time in a physical marketing channel, and where they are economically appropriate to the reduction of risks in the conduct and management of a commercial enterprise, and where they arise from:

(A) The potential change in the value of assets which a person owns, produces, manufactures, processes, or merchandises or anticipates owning, producing, manufacturing, processing, or merchandising;

(B) The potential change in the value of liabilities which a person owes or anticipates incurring; or

(C) The potential change in the value of services which a person provides, purchases or anticipates providing or purchasing.

But no transactions or positions shall be classified as cover for the purposes of these requirements unless their purpose is to offset price risks incidental to commercial cash or spot operations, and such positions are established and liquidated in accordance with sound commercial practices, and unless the provisions of the paragraphs (ii) or (iii) below have been satisfied.

(ii) Enumerated cover transactions:

cover transactions and positions include, but are not limited to, the following specific transactions and positions:

(A) Ownership or fixed-price purchases of any commodity which does not exceed in quantity: (1) the sales of the same commodity for future delivery on a board of trade; (2) the purchase of a put commodity option of the same commodity for which the market value for the actual commodity or futures contract which is the subject of the option is less than the striking price of the option; or (3) the ownership of a commodity option position established by the sale (grant) of a call commodity option of the same commodity for which the market value for the actual commodity or futures contract which is the subject of the option is more than the strike price of the option: Provided however, that for the purposes of Section A6-h of this section the market value for the actual commodity or futures contract which is the subject of such option need not be more than the strike price of that option;

(B) Fixed-price sale of any commodity which does not exceed in quantity: (1) the purchase of the same commodity for future delivery on a board of trade; (2) the purchase of a call commodity option of the same commodity for which the market value for the actual commodity for futures contract which is the subject of such option is more than the striking price of the option; or (3) the ownership of a commodity option position established by the sale (grant) of a put commodity option of the same commodity for which the market value for the actual commodity or futures contract which is the subject of the option is less than the strike price of the option: Provided however, that for purposes of Section A6-h of this section the market value for the actual commodity or futures contract which is the subject of such option need not be less than the strike price of that option; and

(C) Ownership or fixed-price contracts of a commodity described in the preceding two paragraphs may also be covered other than by the same quantity of the same cash commodity, provided that the fluctuations in value of the position for future delivery or commodity options are substantially related to the fluctuations in value of the actual cash position.

(iii) Nonenumerated cases: cover transactions and positions also include transactions or positions which have been recognized by the CFTC as "cover" pursuant to CFTC Regulation 1.17(j)(3). (In such cases, a copy of the CFTC's letter recognizing such transactions or positions should be filed with the DSRO.)

A1-e. Customer: means a person trading in any commodity future, except the holder of a "proprietary account" as defined in CFTC Regulation 1.3(y); in addition, it means an "option customer" as defined in CFTC Regulation 1.3(jj) and includes a foreign futures and foreign options customer.

A1-f. Non-Customer Account: means a commodity futures or option account carried on the books of a Member FCM which account is neither a Customer Account (See A1-e, above) nor a Proprietary Account (See A1-g, below).

A1-g. Proprietary Account: means a commodity futures or option account carried on the books of a Member FCM for the Member FCM itself, or for general partners of the Member FCM.

A1-h. Striking Price: means the price at which an option customer may purchase or sell the commodity or the contract of sale of a commodity for future delivery which is the subject of a commodity option transaction.

A1-i. Value: means, with regard to:

(i) Commodity futures positions: The value of all long and short commodity positions marked to their market value.

(ii) Listed security options: The value of all long and short positions in listed security options marked to their market value.

(iii) Securities: The value of all long and short securities marked to their market value.

(iv) Commodity options traded on a commodity options exchange: Long and short commodity options shall be marked on their market value.

(v) Commodity options not traded on a commodity options exchange: The value shall be the difference between the option's strike price and the market value for the actual commodity or futures contract which is the subject of the option.

a. Call commodity option: If the market value for the actual commodity or futures contract is less than the strike price, it shall be given a zero value.

b. Put commodity option: If the market value for the actual commodity or futures contract is more than the strike price of the option, it shall be given zero value.

(vi) Unlisted security options: The difference between the option's exercise value or striking value and the market value of the underlying security.

(vii) Unlisted calls: Zero, if the market value of the underlying security is less than the exercise value or striking value of such call.

(viii) Unlisted puts: Zero, if the market value of the underlying security is more than the exercise value or striking value of the unlisted put.

A1-j. Foreign Futures or Foreign Options Secured Amount: has the same meaning as in CFTC Regulation 1.3(rr).

SECTION A2. RULES OF CONSTRUCTION
FOR PURPOSES OF THESE REQUIREMENTS.

A2-a. Aging of Margin Calls-Computation of: In computing the number of days a margin call is outstanding, DAY ONE would equal the first business day after the day on which the margin call was issued (which must be the business day subsequent to the day the position becomes undermargined).

A2-b. [Reserved]

A2-c. Contractual Commitments: include underwriting, when issued, when distributed, and delayed delivery contracts; and the writing or endorsement of security puts and calls and combinations thereof. It does not include uncleared regular way purchases and sales of securities. A series of contracts of purchase or sale of the same security, conditioned, if at all, only upon issuance, may be treated as an individual commitment.

A2-d. Liabilities-Adequate Collateralization: Liabilities are "adequately collateralized" when, pursuant to a legally enforceable written instrument, such liabilities are secured by identifiable assets that are otherwise unencumbered, and the market value of the assets exceeds the amount of such liabilities.

A2-e. Secured Receivables: A loan or advance or any other form of receivable is not "secured" unless the following conditions exist:

The receivable is secured by readily marketable collateral which is otherwise unencumbered, and which can be readily converted into cash, provided that the value of the collateral must be haircut as prescribed in A6, below, before determining whether the receivable is properly secured; and

(i) The readily marketable collateral is in the possession or control of the Member FCM; or

(ii) The Member FCM has a legally enforceable, written secured agreement, signed by the debtor, and has a perfected security interest in the readily marketable collateral within the meaning of the laws of the State in which the readily marketable collateral is located.

A2-f. SEC Definitions: For securities broker-dealers, any asset or liability defined in SEC Regulations (See SEC Regulation 15c3-1) and which is not specifically defined in these Requirements, shall be treated in accordance with the SEC Regulations. Broker-dealers should treat aggregate indebtedness in accordance with SEC Regulation 15c3-1(c)(1) as it applies to the securities segment of their business.

A2-g. Unrealized Profits: shall be added and "Unrealized Losses" shall be deducted in the accounts of the Member FCM, including unrealized profits and losses on fixed price commitments and forward contracts.

SECTION A4. CURRENT ASSETS: means cash and other assets or resources commonly identified as those which are reasonably expected to be realized in cash or sold during the next 12 months. In computing Current Assets:

A4-a. Debit and Deficit Accounts. Exclude any unsecured commodity futures or option account containing a ledger balance and open trades, the combination of which liquidates to a deficit, or containing a debit ledger balance only. Deficits or debit ledger balances in unsecured Customers, Non-Customers and Proprietary Accounts which are the subject of calls for margin or other required deposits may be included in Current Assets until the close of business the day following the date on which such deficit or debit ledger balance originated: Provided, however, that the account had timely satisfied, through the deposit of new funds, the previous day's debit or deficit, if any, in its entirety.

(i) Receivables resulting from the marketing of inventories commonly associated with the business activities of the Member FCM and advances on fixed price purchase commitments, but only if they are outstanding no longer than three calendar months from the date that they are accrued;

(ii) Interest receivable, floor brokerage receivable, commissions receivable from other brokers or dealers (other than syndicate profits), mutual fund concessions receivable and management fees receivable from registered investment companies and commodity pools, but only if they are outstanding no longer than 30 days from the date they are due, and dividends receivable that are outstanding no longer than 30 days from the payable date;

(iii) Receivables from clearing organizations;

(iv) Receivables from FCMs or brokers, resulting from commodity futures or option transactions, except those specifically excluded under A4-a, above;

(v) Insurance claims which arise from a reportable segment of the Member FCM's overall business activities as defined in generally accepted accounting principles, other than in the commodity futures, commodity option, security and security option segments of the FCM's business activities, which are not outstanding more than three calendar months after the date they are recorded as a receivable; and

(vi) All other insurance claims not subject to (v) above which are not older than seven business days from the date the loss giving rise to the claim is discovered; insurance claims which are not older than 20 business days from the date the loss giving rise to the claim is discovered and which are covered by an opinion of outside counsel that the claim is valid and is covered by insurance policies presently in effect; and insurance claims which are older than 20 business days from the date the loss giving rise to the claim is discovered and which are covered by an opinion of outside counsel that the claim is valid and covered by insurance policies presently in effect and which have been acknowledged in writing by the insurance carrier as due and payable, unless such claims are outstanding longer than 20 business days from the date they are so acknowledged by the carrier.

(ii) Securities which are considered "readily marketable" as defined in SEC Rule 15c3-1(c)(11) or which "adequately collateralize" (See A2-d, above) indebtedness;

(iii) Work in process and finished goods which result from the processing of commodities at market value;

(iv) Raw materials at market value which will be combined with spot commodities to produce a finished processed commodity; and

(v) Inventories held for resale commonly associated with the business activities of the Member FCM.

A4-e. Doubtful Assets. Exclude all assets doubtful of collection or realization less any related reserves.

A4-f. Exchange Memberships. Exclude exchange memberships.

A4-g. Fixed Assets. Include fixed assets and assets which otherwise would be considered noncurrent to the extent of any long-term debt adequately collateralized by assets acquired for use in the ordinary course of the Member FCM's ordinary trade or business, and any other long-term debt adequately collateralized by assets of the Member FCM if the sole recourse of the creditor is such assets, but only if such liabilities are not excluded from liabilities in the computation of Net Capital under A5-d, below.

A4-h. Future Tax Benefits. Include, in the case of future income tax benefits arising as a result of unrealized losses, the amount of income tax liabilities accrued on the books and records of the Member FCM, but only to the extent such benefits could have been applied to reduce accrued tax liabilities on the date of the capital computation, had the related unrealized losses been realized on that date.

A4-i. Guarantee Deposits and Clearing House Stock. Include guarantee deposits with clearing organizations and stock in clearing organizations to the extent of its margin value.

SECTION A5. LIABILITIES: means the total money liabilities of a Member FCM arising in connection with any transaction whatsoever, including economic obligations of the Member FCM that are recognized and measured in conformity with generally accepted accounting principles. Liabilities also include any deferred credits that are not obligations but that are recognized and measured in conformity with generally accepted accounting principles. In computing liabilities:

A5-a. Satisfactorily Subordinated Liabilities. Exclude liabilities which are subordinated to the claims of all general creditors of the Member FCM pursuant to subordination agreements which meet the standards set forth in Schedule C.

A5-b. Segregated Funds. Exclude the amount of money, securities and property due to commodity futures or option customers which is held in segregated accounts in compliance with Section 4d of the Commodity Exchange Act and CFTC Regulations, including CFTC Regulation 32.6, but only if such money, securities and property held in segregated accounts has been excluded from Current Assets in computing Net Capital.

A5-c. Deferred Income Tax Liability. Exclude the lesser of any deferred income tax liability related to the items in (i), (ii) and (iii) below, or the sum of (i), (ii) and (iii) below:

(i) The aggregate amount resulting from applying to the amount of the deductions computed in accordance with Section A6, the appropriate Federal and State tax rate(s) applicable to any unrealized gain on the asset on which the deduction was computed;

(ii) Any deferred tax liability related to income accrued which is directly related to an asset otherwise deducted pursuant to these financial rules;

(iii) Any deferred tax liability related to unrealized appreciation in value of any asset which has been otherwise excluded from Current Assets in accordance with these requirements.

A5-d. Long-Term Liabilities. Exclude liabilities which would be classified as long term in accordance with generally accepted accounting principles to the extent of the net book value of plant, property and equipment which is used in the ordinary course of any trade for business of the Member FCM which is a reportable segment of the Member FCM's overall business activities, as defined in generally accepted accounting principles, other than in the commodity futures, commodity option, security and security option segments of the Member FCM's business activities, but only if such plant, property and equipment is not included in Current Assets pursuant to A4-g, above.

A5-e. Certain Liabilities of Sole Proprietors. Include, in the case of a Member FCM who is a sole proprietor, the excess of liabilities which have not been incurred in the course of business as an FCM over assets not used in the business.

A5-f. Certain Current Tax Liabilities. Exclude current tax liabilities resulting from accrued income which is directly related to an asset which is treated as non-current pursuant to Section A4 of these regulations.

SECTION A6. ADJUSTED NET CAPITAL: means Net Capital less:

A6-a. Advances. The amount by which any advances paid by the Member FCM on cash commodity contracts and used in computing Net Capital exceeds 95 percent of the market value of the commodities covered by such contracts.

A6-b. Inventory, Open Commitments and Forward Contracts. In the case of all inventory, open commitments and forward contracts (except for inventory of an forward contracts in those foreign currencies which are purchased or sold for future delivery on or subject to the rules of a contract market and Covered by an open futures contract, for which there will be no charge), the applicable percentage charge is specified below:

(i) Inventory net of net open commitments, currently registered as deliverable on a contract market and Covered by an open futures contract-no charge.

(ii) Inventory net of net open commitments, Covered by an open futures contract or commodity option-five percent of the market value.

(iii) Inventory net of net open commitments, not Covered-20 percent of the market value.

(iv) Open commitments (net open purchases and sales) and forward contracts which are Covered by an open futures contract or commodity option-10 percent of the market value.

(v) Open commitments (net open purchases and sales) and forward contracts which are not Covered by an open futures contract or commodity option-20 percent of the market value.

A6-c. Securities. In the case of securities and obligations used by the Member FCM in computing Net Capital, and in the case of securities in segregation pursuant to Section 4d(2) of the Commodity Exchange Act which are not deposited by customers, the percentage specified in SEC Regulation 15c3-1(c)(2)(vi) (securities haircuts) and 100 percent of the value of "nonmarketable securities" as specified in SEC Regulation 15c3-1(c)(2)(vii), or where appropriate for securities brokers or dealers, the percentages specified in SEC Regulation 15c3-1(f).

A6-d. Securities Options. In the case of securities options used by the Member FCM in computing Net Capital, the deductions specified in SEC Regulation 15c3-1, Appendix A, after effecting the adjustments to Net Capital for listed and unlisted options as set forth in that Appendix.

A6-e. Open Contractual Commitments. In the case of a Member FCM who has Open Contractual Commitments (See A2-c, above) the deductions specified in SEC Rule 15c3-1(c)(2)(viii).

A6-f. Undermargined Customer Futures and Options Accounts. For under-margined Customer (See A1-e, above) commodity futures accounts and Customer commodity options accounts, the amount of funds required in each such account to meet maintenance margin requirements of the applicable board of trade or commodity options exchange, or if there are not such maintenance margin requirements, the clearing organization margin requirements applicable to such positions, after application of calls for margin, or other required deposits which are outstanding three business days or less. If there are no such maintenance margin requirements or clearing organization margin requirements on such accounts, then the amount of funds required to provide margin equal to the amount necessary after application of calls for margin, or other required deposits outstanding three days or less to restore original margin when the original margin has been depleted by 50 percent or more. To the extent a deficit is excluded from Current Assets in accordance with A4 above, however, such amount shall not also be deducted.

When other than cash is deposited to margin or secure an account, the value of the asset shall be the lesser of:

(i) The value attributed to such asset under the margin rules of the pertinent board of trade; or

(ii) The value of the asset after taking the percentage charges specified in this Section A6.

A6-g. Undermargined Non-Customer and Omnibus Futures and Options Accounts. For undermargined Non-Customer (See A1-f, above) and omnibus commodity futures and commodity options accounts, the amount of funds required in each such account to meet maintenance margin requirements of the applicable board of trade or commodity options exchange, or, if there are no such maintenance margin requirements, the clearing organization margin requirements applicable to such positions, after application of calls for margin, or other required deposits which are outstanding two business days or less. If there are no such maintenance margin requirements, or clearing organization margin requirements, then the amount of funds required to provide margin equal to the amount necessary after application of calls for margin, or other required deposits outstanding for two days or less to restore original margin when the initial margin has been depleted by 50 percent or more. To the extent a deficit is excluded from Current Assets in accordance with A4-a above, however, such amount shall not also be deducted.

When other than cash is deposited to margin or secure an account, the value of the asset shall be the lesser of:

(i) The value attributed to such asset under the margin rules of the pertinent board of trade; or

(ii) The value of the asset after taking the percentage charges specified in this Section A6.

A6-h. Open Futures Positions and Grantor Commodity Options in Proprietary Accounts. In the case of open futures contracts and grantor commodity options held in Proprietary Accounts (See A1-g, above) carried by the Member FCM which are not Covered by a position held by the Member FCM or which are not the result of a changed trade made in accordance with the rules of a contract market:

(i) For a Member FCM which is a clearing member of a contract market, for the positions on such contract market cleared by such member, the amount of the applicable margin requirement of the applicable clearing organization;

(ii) For all other Member FCMs, an amount equal to 150 percent of the applicable maintenance margin requirement of the applicable board of trade, commodity options exchange, or clearing organization, whichever is greater;

(iii) For open contracts or granted (sold) commodity options for which there are no applicable maintenance margin requirements, 200 percent of the applicable initial margin requirements.

The equity in such proprietary account shall reduce the deduction required by this Section if such equity is not otherwise includable in Adjusted Net Capital.

A6-i. Commodity Options. For customer commodity options, four percent of the market value of commodity options granted (sold) by options customers on or subject to the rules of a contract market or a foreign board of trade.

A6-j. Purchaser of Commodity Options Not Traded on a Contract Market. In the case of a commodity option which is carried long by the Member FCM as a taker of a commodity option not traded on a contract market which has value and such value is used to increase Adjusted Net Capital, 10 percent of the market value of the commodity which is the subject of such option, but in no event more than the value attributed to such option.

A6-k. Purchaser of Commodity Options Traded on a Contract Market. In the case of a Member FCM which is a purchaser or taker of a commodity option which is traded on a contract market, the same safety factor as if the member were a grantor of such option (See A6-h, above). In no event shall the safety factor be greater than the market value attributed to such option.

A6-l. Unsecured Receivables. Five (5) percent of all unsecured receivables (See A2-e, above) includable under A4-b(iv) above used by the Member FCM in computing Net Capital and which are not receivable from another FCM or a broker or dealer registered with the SEC.

A6-m. Broker-Dealer Charges. For securities brokers or dealers, all other deductions specified in SEC Rule 15c3-1.

SECTION A7. CONSOLIDATIONS.

A7-a. Every Member FCM, in computing its Net Capital pursuant to this section must (subject to the provisions of A7-b and A7-d, below) consolidate, in a single computation, assets and liabilities of any subsidiary or affiliate for which it guarantees, endorses or assumes directly or indirectly the obligations or liabilities. The assets and liabilities of a subsidiary or affiliate whose liabilities and obligations have not been guaranteed, endorsed or assumed directly or indirectly by the Member FCM may also be so consolidated if an opinion of counsel is obtained as provided for in A7-b below.

A7-b.

(i) If the consolidation, provided for in A7-a above, of any such subsidiary or affiliate results in the:

(A) increase of the Member FCM's Adjusted Net Capital; or

(B) decrease of the minimum Adjusted Net Capital requirement called for by Section 1, and an opinion of counsel called for in Section A7-b(ii) below has not been obtained,

such benefits shall not be recognized in the Member FCM's capital computation under these requirements.

(ii) Except as provided in A7-b(i) above, consolidation shall be permitted with respect to any subsidiaries or affiliates which are majority owned and controlled by the Member FCM and for which the Member FCM can demonstrate to the satisfaction of its DSRO by an opinion of counsel that the Net Asset values, or the portion thereof related to the parent's ownership interest in the subsidiary or affiliate, may be caused by the Member FCM or an appointed trustee to be distributed to the Member FCM within 30 calendar days. Such opinion must also set forth the actions necessary to cause such a distribution to be made and identify the parties or classes of parties (including but not limited to customers, general creditors, subordinated lenders, minority shareholders, employees, litigants and governmental or regulatory authorities) who may delay or prevent such a distribution and such other assurances as the DSRO by rule or interpretation may require. Such opinion must be current and periodically renewed in connection with the Member FCM's annual audit or upon any material change in circumstances.

A7-c. In preparing a consolidated computation of Adjusted Net Capital, the following minimum and nonexclusive requirements shall be observed:

(i) Consolidated Adjusted Net Capital shall be reduced by the estimated amount of any tax reasonably anticipated to be incurred upon distribution of the assets of the subsidiary or affiliate.

(ii) Liabilities of a consolidated subsidiary or affiliate which are subordinated to the claims of present and future creditors pursuant to a satisfactory subordination agreement shall be deducted from consolidated Adjusted Net Capital unless such subordination extends also to the claims of present or future creditors of the parent Member FCM and all consolidated subsidiaries.

(iii) Subordinated liabilities of a consolidated subsidiary or affiliate which are consolidated in accordance with A7-c(ii) above may not be prepaid, repaid or accelerated if any of the entities included in such consolidation would otherwise be unable to comply with the provisions of Schedule C.

(iv) Each Member FCM included within the consolidation shall at all times be in compliance with the Adjusted Net Capital requirement to which it is subject.

A7-d. No Member FCM shall guarantee, endorse or assume directly or indirectly any obligation or liability of a subsidiary or affiliate unless the obligation or liability is reflected in the computation of Adjusted Net Capital except as provided in A7-b(ii) above.

SECTION 7A8. PERFORMANCE MARGIN.

A8-a. Every Member FCM that is not a member of a contract market or a foreign board of trade must collect performance margin (initial and maintenance) for all customer accounts at a level no less than that established for customer accounts by the rules of the applicable contract market or a foreign board of trade.

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